Expect changes to corn insurance

Corn growers will notice a couple of major changes in crop insurance for 2014.

By:
SDSU Extension Service , Agweek

BROOKINGS, S.D. — Corn growers will notice a couple of major changes in crop insurance for 2014.

The lower price of corn and lower volatility in the market will combine to make crop insurance premiums lower for the 2014 crop, says Matthew Diersen, South Dakota State University Extension risk and business management specialist.

Diersen adds that insurance will now be available for nonirrigated corn for grain in several more western counties.

“Growers in those counties now have the ability to directly insure corn using either Yield Protection or Revenue Protection,” Diersen says. “Growers and insurance agents are likely aware of the general way those products work, as they have been available for wheat in those counties.”

Price level

The price level for corn insurance in South Dakota is the average of the December 2014 futures contract price during the month of February. At the end of January, Diersen says that price was $4.50 per bushel, down sharply from last year.

“That lower price level means that the cost of insurance will also decline,” he says.

Volatility in the futures market is the other cost driver, Diersen explains.

“The volatility factor has averaged 0.27 over the past five years. The volatility is currently projected to be about 0.17 — a level not seen since 2002. That low volatility, should it continue, will mean that insurance premiums will be lower in 2014,” he says.

As growers make corn marketing decisions, Diersen says it is helpful to remember that the crop insurance settles to the average of the December 2014 futures contract price during October.

“Thus, for growers hedging with futures or options, it would reduce the basis risk to use the December contract and plan to lift or roll hedges in October,” he says.

The basis, cash price in South Dakota minus the futures during October, has averaged -$0.71 the past five years. Thus, the futures price of $4.50 per bushel suggests a cash price at harvest of $3.79 per bushel.